© kcs 20091 knowledge confidence simplicity ksc 2009 rims canada annual conference st. john’s...
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© KCS 2009 1
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2009 RIMS Canada
Annual Conference
St. John’s NL
Finding the Charts: knowing your options
James Kallman, Ph.D., ARM, RF
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• The Need
• ERM Options
• ERM Language
• ERM Information
• Lessons Learned
Finding the Charts: knowing your options
OUTLINE
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• ERM Purpose: To provide a means for all risk associates to make decisions to achieve
the desired variations, expected outcomes, and timing regarding the organization’s goals.
• The risk associates need to speak the same language – the language of risk.
• But, the language of risk is a “kettle of fish” – an awkward collection of terms – often
with conflicting or confusing concepts.
• Example: “risk” ??!
Finding the Charts: knowing your options
ERM Purpose and Need
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Risk managers separate “risks” into categoriesso they are more efficiently managed.
• Strategic Risks• Asset Management (Real, Personal, Personnel)• Reputation risk (Social Justice, Governance, Environmental Stewardship)• Market position (product, price, placement, promotion)
• Operational Risks• Supply-side Risks (capital, labor, commodities)• Production Risks (ITX, operations mgmt)• Distribution Risks (logistics, intermediaries)
• Economic Risks• Financial Market Risks (IX, FX, CX, DX)• Credit Risks (A/R, A/P)• Economic Performance Risk (So , EPS, Bond rating)
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Finding the Charts: knowing your options
ERM Purpose and Need
Understanding the Types of Risks
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• Risk is expensive!
The cost of risk:
Allocation of Scarce resource of People, Money, and Time
Types:
• System administration = salaries, overhead, monitoring, & reporting
• Risk control = (investments + marketing) & (prevention + reduction projects)
• Risk financing = transactions costs, opportunity costs, & insurance
A wasteful allocation of resources can happen
if risks aren’t understood.
Finding the Charts: knowing your options
ERM Purpose and Need
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• The Need
• ERM Options
• ERM Language
• ERM Information
• Lessons Learned
Finding the Charts: knowing your options
OUTLINE
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You must choose:
• A Taxonomy
• A Framework
• A System
Taxonomies: • Insurance – based in antiquity• Economics – • Finance – “maximize shareholder wealth”• RISK – we’re building the ship now.
Finding the Charts: knowing your options
ERM Options
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You must choose: • A Taxonomy• A Framework• A System
Frameworks: • COSO• AS/NZS 4360 • ISO 31000• USA “red, white, blue, and orange” books• Canadian Standards Association•KCS ERM 1998
Finding the Charts: knowing your options
ERM Options
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You must choose: • A Taxonomy• A Framework• A System
Systems: • CFO• Legal • Audit• CRO• Outsourcing
Finding the Charts: knowing your options
ERM Options
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• The Need
• ERM Options
• ERM Language
• ERM Information
• Lessons Learned
Finding the Charts: knowing your options
OUTLINE
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• Risk: the variation from the expected outcome over time.
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Finding the Charts: knowing your options
ERM Language
time
E(X)1
E(X)2
E(X)3
Expected values - E(x)t
Pro
babi
lity
of o
utco
me
- p(
x)
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• Risk: the variation from the expected outcome over time.
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Finding the Charts: knowing your options
ERM Language
Statistical Control Chart
+3 UCL
+2 UCL
+1 UCL
E(x)
-1 LCL
-2 LCL
-3 LCL
Time (Samples)
The points represents samples taken over time from a process.
Is this system “in control?”
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• “Terms of art” – Risk Jargon
• Retrocessionaire
• Factor (hazard)
• Pure captive
• Contingent Surplus Notes
• Disintermediation
• Free of particular average clause
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Finding the Charts: knowing your options
ERM Language
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• The Need
• ERM Options
• ERM Language
• ERM Information
• Lessons Learned
Finding the Charts: knowing your options
Outline
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• http://dictionary.reference.com – Risk: “exposure to the chance of injury or loss”
• riskglossary.com - “risk comprises two component: uncertainty and exposure”
• Google.com - “risk” -290,000,000 hits
• Internet Archive - “risk” 1,633 hits – books
• Riskopedia – Basel II information
• Riskipedia – articles – primarily insurance
• Wikipedia - For the Canadian television program, see Risk Takers.
•ClearRisk.com – professionally reviewed information
Finding the Charts: knowing your options
ERM Information
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• The Need• ERM Options• ERM Language• ERM Information• Lessons Learned
•Need: The risk associates need to speak the same language – the language of risk; a framework; and a system.
•Options: create an ERM Structure
•Language: It’s risky!
•Information: Centralized data repository is a practical tool for risk managers.
Finding the Charts: knowing your options
OUTLINE
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Thank you!
For more information please contact:
James Kallman, Ph.D., ARM, RF
[email protected] www.kcserm.com
Finding the Charts: knowing your options